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Britain’s biggest property listings website today said investors were piling into buy-to-let for “blindingly good returns” after the government’s efforts to bolster lending had created an “arbitrage of immediate return”.

Rightmove said its research showed that rents are delivering average gross yields of “5.9 per cent”.

Its monthly house price report stated: “With some remortgage finance available at lowest ever levels, from as little as 2 per cent for a two year fixed rate and 2.7 per cent for a five year fixed rate, there is the possibility of a straight arbitrage of immediate return on money borrowed against your main residence.”

This could, in theory, be borrowing against your home to release equity that could go toward a buy to let purchase, possibly as a deposit. Lenders, however, normally require borrowers to have buy-let-mortgages, which come with higher rates than residential mortgages.

The Government’s Funding for Lending Scheme (FLS), launched last summer, has offered £80bn of loans to banks at rates as low as 0.25pc. This has helped pushed down mortgage – and savings – best buy deals.

41pc of homeowners ‘forced to sell at a loss’
Four in ten homes bought after 2007 have been sold at a loss as the UK housing market stalled in the global financial crisis.
Shared equity firm Castle Trust tracked house purchases and sales in England and Wales from January 2007 to January 2013.

The study of Land Registry figures found 41pc of houses bought after 2007 were sold at a loss, with an average shortfall of 11pc. Over the same period, 56pc of homes were sold for more than the seller paid, with an average profit of £45,199.

Sean Oldfield, chief executive officer at Castle Trust, said the figures showed how easy it was to lose money on a house.

“The long-term performance of house prices shows national house price growth in line with national wage growth, but it is clear that individual house prices are really volatile and that home ownership is risky – much more risky than almost everyone appreciates,” he said.

Figures from the Office for National Statistics (ONS) showed that, on a seasonally adjusted basis, UK house prices fell by 0.7pc between December and January, compared with a 0.4pc rise in January 2012.

This followed rises through the final quarter of 2012, including an increase of 1.1pc in December.

The average price of a house in the UK in January was £234,000.

Meanwhile, the year-on-year increase in house prices fell back to a 2.2pc rise in January after rising 3.3pc in the 12 months to December.

And these two graphs prove interesting:

Also, as more ‘landlords’ seek to join the rentier brigade, the inevitable market swamping might occur:

Recent lending figures have shown increases in first-time buyer numbers following the introduction of Government schemes aiming to give people a leg up onto the property ladder.

The rental dip seen for the last three months has followed soaring rents due to high numbers of would-be buyers who have found themselves trapped in renting because they have not been able to get access to a mortgage.

The number of mortgages on the market has increased by around one third and lenders have been offering some of their lowest ever rates since the Government’s Funding for Lending scheme to help borrowers was introduced last August.

The latest LSL study found that the South East saw the sharpest monthly fall in rents, with a 1.5pc drop taking average rents to £744.

Whether or not Bank of England Governor Sir Mervyn King is right to say economic recovery is in sight, several top fund managers can point to handsome profits already achieved in several British manufacturing stocks.

The fact is most people alive today have never experienced a real economic contraction, let alone one at the global scale. The effect of such a powerful force have yet to be established, but old myths are sure to be smashed, such as supply and demand, and replaced with realities such as price and affordability. There will no doubt be more localised bubbles of economic activity as the various players jostle for the remaining areas of growth, but these are going to become increasingly scarece. As the contractive forces tighten their grip, all that future discounted debt is going to have to be repaid, not unlike those thrifty people with ‘interest only’ (with or without ‘endowment’) mortgages:
Older homeowners face raiding savings to pay mortgage

With the regulators cracking down on interest-only deals and rates expected to rise in the next two years, the group is unlikely to be offered equivalent terms to those they are on, Moody’s warned. “Older borrowers with interest only loans face refinancing risk,” it said.

Annabel Schaafsma, a manager in Moody’s structured finance group, said: “The most at-risk group are those with deposits of less than 20pc. Some will have to use their savings to repay the mortgage. Others will have to downsize.”

The analysis is surprising as older borrowers have been the main beneficiaries of a massive housing boom, with house prices trebling between 1997 and 2010 alone.

However, separate research by Fathom Consulting suggested they may be carrying large debts because they released equity to help their children.

Couple with the ‘squeeze’ on the former middle classes, as well as everyone else who isn’t in the 1%:

Even though they are paying relatively less tax than they were at the onset of the recession, it is still not enough to counteract the effect of falling wages, the study shows.

According to the Office for National Statistics (ONS) the average middle class household has seen their disposable income drop from £31,100 a year in the financial year 2007 to 2008 to just £29,900 in 2010-11, a fall of almost four per cent.

The figures do not take into account living costs and other essential outgoings faced by families such as childcare and food.

Yet when their gross household income, before tax and other elements is included, the total fell by as much as nine per cent, dropping from £36,400 in 2007/08 to £33,200 the figures show.

The study charts the financial fortunes of the group middle fifth of the population over a period from 1977 to 2011.

It shows that the average disposable income of a working-age household at today’s prices roughly doubled over just under 35 years.

It rose markedly during the 1990s but slowed around 2003 and has dropped since the onset of the financial crisis in 2008.

The study also shows that while pensioners have progressively become better off in that time, families with children have been squeezed to the margins.

In 1977 households with children made up more than half (53 per cent) of the main middle-income strand of the population.

But by 2011 that had fallen to less than a third.

Given rising prices, and so far, rising rents, how long till the ‘Sub-prime’ Tsunami hits UK shores?

Further, what many do not realise is that the current social benefit cuts being implemented by the UK government will drastically reduce the amount that is currently going to landlords as many on benefits are in rented accommodation – this has been one of the problems as rents have increased so has housing benefit to pay for it. Housing benefit is being changed, and a total cap of £26k per annum is being placed on families, with individual allowances being capped at £18200. While many do not get anywhere near that amount, for some living in expensive area such a London, where rents are high this amount is easy to reach in rent alone, yet alone living expenses. These capped allowances will include both rent and money to pay bill and live on. While the idea is to get people into work, when the work is not there this will feed into a deflationary effect with the government effectively withdrawing a direct supply of money into the UK economic system. The buy to let bubble is well and truly on its way to bursting, as predictions of rental defaults and long voids on properties will start to bankrupt the many small portfolio landlords, those with as few as just one or two properties who perhaps were hoping to make an investment for retirement. Coupled with the above initiatives and ongoing maintenance on properties with yields only averaging 6% when a recognised historical yield of 12% was needed to make rental property viable, along with possible mortgage increases things do not look good. Watch out for rents sliding, and landlords selling…